Toys R Us focusing on Web commerce

CBS.MarketWatch.com

TRENTON, N.J. (AP) - Once the nation's biggest toy retailer, Toys R Us Inc.
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is shooting to regain dominance - if not on the sales floor, then on the World Wide Web.

The Paramus-based company hopes to leapfrog past eToys into the top spot among online vendors of toys, clothing and other children's products by the fall, the all-important holiday shopping season, chief executive officer Robert C. Nakasone said Tuesday.

The company will turn its Web sales operation into a separate subsidiary called toysrus.com, build a large distribution center in Memphis, Tenn., and possibly sell stock for the unit. Toys R Us will also take on a venture capital firm as a partner.

"We can see this, over time, becoming an important business for us," Nakasone predicted. "We're going to be No. 1 in e-commerce in toys and children's products for the fourth quarter."

Toy industry analyst Sean McGowan of Gerard Klauer Mattison said that goal is feasible, given the company's name recognition and popularity.

"I think they're late (focusing on e-commerce), but it's good that they're doing it now, and they have a strong chance of being successful," McGowan said.

Investors also seemed happy with the plan, pushing shares up $1.25 to $23.06 1/4 in trading on the New York Stock Exchange Tuesday.

Toys R Us was passed by Wal-Mart Stores Inc. as America's top toy retailer last year. It still claims to be the world's biggest retailer of children's products, with $11.2 billion in annual sales, but the company reported a $132 million loss last year because of a $508 million charge for store closings and restructuring.

Toys R Us has operated a Web site for nearly two years, but until last June it only supplied company information such as store locations. After beginning to sell toys on the Web, Toys R Us saw a jump in online visitors - including a surge so strong during the holiday season that the Web page had to be taken down for a few days - leading to the decision to improve the site, Nakasone said.

Besides making it easier to navigate and improving graphics, Toys R Us will also add some e-mail options, including notifying customers when out-of-stock merchandise again becomes available or reminding patrons when relatives' birthdays are coming up.

While Internet toy sales are only expected to total $52.6 million this year, or 0.2 percent of all U.S. toy sales, those revenues are expected to increase tenfold to about $555 million in the next three years, according to Ken Cassar of New York-based research firm Jupiter Communications Corp.

"Any national retailer that does not embrace the Web will be missing significant opportunity and potentially risk watching their market share drop," Cassar said.

Earlier this month, Mattel, the world's biggest toymaker and one of Toys R Us' biggest suppliers, announced that it would spend $50 million to launch an Internet sales venture called Mattel.com in October.

The new Toys R Us subsidiary handling the Web sales will be located somewhere in Northern California's Silicon Valley, but a site has not been chosen yet. The improved site, which will also sell merchandise from the company's Kids R Us and Babies R Us clothing stores, should be operating by the end of next month.

Benchmark Capital of Menlo Park, Calif., the Silicon Valley venture capital firm that helped bankroll such Internet successes as the online auction house eBay, will partner with Toys R Us in the new venture and is making an undisclosed investment.

McGowan said the partnership gives Toys R Us "access to smart people with good technology faster then they would have gotten there on their own." The plan to offer shares will help attract workers from the Silicon Valley looking for lucrative options on an Internet stock, he added.

Toys R Us operates 1,488 stores worldwide, down from its peak of around 1,500, according to company spokeswoman Rebecca Caruso. The current stores include 703 U.S. toy stores, 455 international toy stores, 212 Kids R Us children's clothing stores and 118 Babies R Us stores.

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